May 6, 2019

Michael Kramer and the clients of Mott Capital own Netflix and Apple

May 6, 2019

• S&P 500 Futures -51.50
• US Treasury Yields 2.475%
• US Dollar Index 97.58
• Oil $61.16
• VIX 18.6

International Markets

• China Shanghai -5.58%
• Hong Kong HSI -2.9%
• Germany DAX -2%
• UK FTSE – Closed

So old, So Tired

Has it been 50 times, it sure feels like. Once again, markets are falling around the world on threats that the US may increase tariffs on China goods and as China threatens to pull out of the trade talks. 😛  This is so old already. It is exhausting.

Trade Tensions

How bad will things be it is unclear, however, it does give us a sense of just how much the market was pricing in for the trade deal. At this point, it was about 2%.

A 2% decline is never fun, but to have it happen at an all-time high is not a bad place for it to happen, which is likely why the tweet came on Sunday after a three-day holiday in China, ahead of the next and what could be the last round of trade talks. Remember it was at last week that Mick Mulvaney the “temporary” White House Chief of Staff said we would find out by Friday one way or another if a deal would be reached. Seems like a very well orchestra and planned tweet from the President.

Is this likely to be the end of the bull market rally? I don’t think so. But can things get uncomfortable, sure they can, why not? Am I sitting here biting my nails? No. How many times have we been through this before? The trade nonsense has gone on for over a year now. How long will the drawdown last? Until lunchtime? Until the next tweet comes out that says Me and my dear friend President Xi….

While a trade war does increase the risk of further economic slowing, it is hard to quantify what will the multiplying effects of about $100 billion worth of tariffs will have in a global economy of about $85 trillion. Is it fivefold? Tenfold? Twentyfold? Fiftyfold? How about have I no-idea-fold? Seriously. The global economy is $85 trillion; Trump places a  25% tax on $500 billion worth goods; it is about $125 billion; it is less than 20 bps.

What isn’t clear to me is what the potential impact of a trade war with China could be. From what I have seen roughly 40% of the revenue in the S&P 500 is internationally based. But in some case, such as stocks like Facebook, Netflix, or Amazon it is even harder to quantify as they have no business with China

Will subscribers in India slow due to higher tariffs in China? Doubtful. Will small businesses advertise less on Facebook, probably not. Will I stop ordering my weekly household supplies on Amazon, no.  So while it makes sense for a specific part of the market to fall, such as the companies that may do business directly with China, such as Apple, Boeing or Caterpillar. It doesn’t make sense for other stocks to fall.

So you should think long and harder before dumping stocks on trade war fears. Considering the actual dollar amount of the tariffs makeup such a small percentage of the US or China economy, and an even lower percentage of the global economy.

Plus the one thing the first round of tariffs has taught us is that companies move and adjust to avoid paying those taxes. So will this result in some steep stock market sell-off that we saw in Fall? Probably not. It will likely not be good for China, but will perhaps better for places like Vietnam, and maybe Thailand, or Indonesia.

S&P 500 Futures

But the good news at least at the moment is that S&P 500 e-mini futures have at least stabilized around 2,900, and is for the moment started to bounce off those lows.

S&P 500 (SPY)

On the S&P 500, the next significant level of support comes around 2,890. But when starting to think about scenario should that level not hold, the index has the potential to drop to about 2,830, which is where there is an unfilled gap.  

 

 

 

 

 

 

 

 

Amazon (AMZN)

Amazon is also falling today but is holding support at around $1900. 

Netflix (NFLX)

Netflix is falling today, but holding support at $378.

Facebook (FB)

Facebook is falling a bit below support at $195.

Alibaba (BABA)

At the moment shares of Alibaba are falling giving back all the gains over the past couple of days. For now, the stock has hung around $182.50, which is the first level of support.

JD (JD)

There has been a great deal of damage done to JD’s chart should the stock open at current levels around $28.30, there is a further risk to around $27.50.

Apple (AAPL)

Apple has fallen below support at $209, but the next level comes quickly around $200.

Semis (SMH)

The chips stocks may be one group to struggle, and for now, the SMH is staying around support at $114.

Anyway, that all for now. Until tonight.

-Mike

Photo from Flickr

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